Wednesday, October 25, 2017

China is coming off its 19th National Congress where it is all about a "new era" for China where the country should take "center stage in the world" but under the surface, all is not well. Something is happening there and it's not exactly clear what is going on. It is difficult to ignore that China's central bank has warned extreme credit creation and trouble in the shadow banking system could
lead to a full-blown financial crisis. In response, they continue pumping out liquidity. If they don't the whole system might seize up and cease to function, on the other hand, such actions only create more problems going forward.

So much for the assumption that many people hold that this particular kind of crisis cannot
develop in a state-run financial system like China's where the banks are under Communist
Party control. Wake up folks, you are delusional if you think any financial system or banking system is not under similar control. Whether it is the Fed or the BOJ politics do matter and those in charge of such institutions do not put the general public first. As for the title of this piece. "China, China, China, It Is All About China And Japan" it should be noted that Japan was added because they currently lead the way in a new central bank experiment to ignore debt and print their way to glory by using the money they print to purchase equities. By doing so Japan is in effect nationalizing companies and transferring ownership from the private to public sector.

A matter that has not garnered enough attention or has been
discounted is how economic problems that develop in
China will spill over and directly impact Japan. The Japanese economy is very vulnerable to a negative feedback loop that could have strong ramifications on its economy. Even with a strong distrust possibly even a
dislike between the people and cultures years ago the two countries joined together in an effort to maximize profiting from exporting to
America. Over the years the interdependence has intensified, China
and
Japan have become
major trading partners with Japanese direct investments
surging and
Japanese technology playing a critical role in the development and
competitiveness of China’s global supply chains. In some ways, the two have become joined at the hip.

We should not underestimate the strong bonds between China and Japan or the amount of corruption that runs through the Chinese economy. We should also remember it is not in the interest of Japan to see the yen strengthen because of the impact it has on their ability to export. In the same way that many people overestimated the strength of the Soviet Union prior to its fall in December of 1991 or the Japanese economy from 1986 to 1991, today people tend to exaggerate the strength of China. When Japan slipped from grace the real estate and stock market prices which were greatly inflated before its massive bubble burst in early 1992 crashed causing the "lost decades" and the problems that still haunt them today. I contend we do the same with China's economy, it seems Americans tend to supersize anything they can conjure up as a challenge to their supremacy.

Unlike events that happen in Las Vegas that has prompted the saying, "anything that happens in Vegas stays in Vegas" things that happen in China do not stay in China. This is obvious from the huge amount of wealth fleeing the country over the last few years. The same can be said of Japan. While this is being downplayed by many economists that are busy with charts searching for what they call growth. The money flowing across porous borders can be seen in soaring house prices in Vancouver and most of Australia. Both China and Japan have been busy supporting zombie companies and not allowing them to fail all in an effort to convince the world all is well. These countries are both very big players in the global economy and when they fall it would be wise to look out below.

Sunday, October 22, 2017

The government of China has been concerned over rising house prices for years. Following the Central
Economic Work Conference in December of 2016 it issued a statement saying, "Houses are built to be inhabited, not for speculation." China
has reiterated and stressed the
importance of putting in place policies that keep real estate
stable and healthy going forward. Over the years low investment returns
in the real economy and easy credit have triggered excessive growth in
property prices in China and attracted too many financial resources to
the real estate sector, causing bubbles and risks. Despite efforts to cool this market and moderate
property prices, market sentiment is still robust with a big part of the enthusiasm driven by a lack of other good investment options. This article delves into some of the hidden risk lurking in this market that are often ignored.

Typical Upscale Housing Development In China

As a contractor and being heavily invested in real estate, I was thinking about
how "draw systems" work. This has to do with how a certain percentage of
the cost of construction is shelled out as each stage of construction
is completed. This is done partially to make sure projects are actually completed. I remember hearing years ago how Home Depot was excited
about entering and developing the massive market in China because
apartments are sold by the developer at the "roughed in" stage with no
interior. You might know Home Depot cut and ran after a few years adding
to the list of American companies that failed in China. Home Depot has
blamed their bad experience on not understanding the Chinese culture.
After reading this article you may question both the quality of how well
these housing units have been finished and how many may never get "finished" or occupied.

In trying to understand the massive housing market that drives much of
China's growth it is important to realize that people in China buy
apartment units that are only roughed in. This means the buyer is
essentially purchasing what we in America would call an "empty shell" or
an unfinished apartment. In most cases, apartments are sold with
internal walls and electrical outlets in place but everything else,
including doors, flooring, and bathroom fixtures will need to be
built-out by the owner after purchase. It is understandable this
created a great deal of excitement for a company like Home Depot that
sells the "rest of the package" in a way that can be a one-stop answer
for any home buyer. It cannot be underestimated that most of the money
spent on constructing a housing unit is spent in finishing, many people
give this little thought.

The importance of the housing market in China's economy should not be
underestimated, this is where almost 75% of the country's household
wealth is stored and it is deeply interwoven with shadow banking. A
close look at housing in China and the customs under which deals are
completed will give Americans some real surprises. Getting information
on this subject is not as easy as we might think in a world where in a
blink of the eye we find dozens of articles on America's latest craze. In fact, it takes a bit of digging and research to better understand the internal workings of China and how its real estate system functions.

Unlike property and housing ownership in America and other western
countries, all property in China is simply being leased for a 70-year
period. The lease is supposed to renew automatically upon expiration,
this might unnerve many buyers that know the Chinese government's
relatively new Ministry of Housing and Construction retains full
"property prerogatives," meaning that leases can be nullified at any
time if the government determines that it needs that property for any
reason. In addition, the government is also entirely free to decide how
much compensation should be offered for that property in the event the
land your apartment happens to be located on is reclaimed by the state.
Recent regulations now give residents the right to sue the government if
they feel they receive unfair compensation, but they rarely win in
court.

Then there is the issue of cost, it could be said cheap housing is
something you won't find in China. Its housing market is among the most
expensive in the world when compared to per capita income. For
example, the average price of housing in New York City is around $200
per square foot with an average family income of $72,000 per year. By
comparison, the average cost of housing in Shanghai for the year 2007
was nearly $108 a sq. ft. against an average family income of $7,316.
Generally speaking, the cost of housing outside of Beijing, Shanghai,
and Guangzhou will run anywhere from 1,500 to 5,000 yuan (roughly $20 to
$68) a foot depending on location. By American standards the apartments are
small, no more than 30 percent of all new apartments can be larger than
90 square meters (970 square feet).

There is a big question and much disagreement over the stability of
China's housing market. Shortly following the end of the 2008 summer
Olympic Games, the housing market in China fell into an unprecedented
slump with housing prices dropping as much as 30 percent below pre-game
prices (note this was around the time the world was in economic crisis).
Aside from this being a very difficult market in which to predict
prices, foreigners may only purchase apartments to live in for personal
use and not to rent out. Virtually no secondary market exists to sell
into if you decide to relocate. When someone in China seeks to buy an
apartment they do not give much consideration to anything but new
construction. Most bizarre is the legal protections and real estate standards are not yet well-established. The various procedures and steps
Americans take for granted when purchasing a property such as; due
diligence, housing inspections, and secure escrow accounts simply do not
exist. China is a land where rules affecting value can change with little notice, good luck with that.

Footnote; If China does eventually fall into economic chaos as some of us have predicted I suspect you will see many articles like this asking why more people did not see it coming. The Chinese economy has "been very reliant" on government stimulus,
rapid credit growth and the flow of newly created money from a loose
monetary policy. We should remember China is far from transparent and
the risk remains out of sight. The simple fact is we have become
complacent over China's current problems, more on this subject
in the article below.http://brucewilds.blogspot.com/2017/07/chinas-financial-missteps-continue.html

Tuesday, October 17, 2017

Recently articles have surfaced exploring how the central banks and governments have controlled markets making a strong case that it was nothing more than a new model of nationalization. By this, I mean taking or transferring a major branch of industry or commerce from the private-sector to state ownership or control. The key word here is "ownership," because while the state may not choose to exercise control over various decisions a company makes the fact is the person or entity that owns the stocks can control perceived valuations by being the market maker that sets prices. This path to economic prosperity by stealth nationalization is filled with moral hazards.

Japan Leads The Way In This Experiment

Years ago before the "Bernanke has all the answers" era, many of us criticized Japan for failing to own its problems. Many people thought Japan should have faced up to the mess it had created and done the right thing. Broadly accepted was the concept that only by letting its zombie banks and industries fail could Japan clean out the system and move forward. Instead, the Government of Japan ran huge deficits and ran up massive debt. For decades Japan languished and avoided disaster only by the fact that it enjoyed a large trade surplus year after year. Today much of that trade surplus has vanished but Japan's massive debt remains.

By Jumping Into ETF Market The BOJ Supports Stocks

Japan is the poster child and living proof that low-interest rates do not guarantee economic growth and prosperity. After 2008 Japan made the decision to put itself on the leading edge of an experiment to propel its economy forward. This includes the BOJ not only expanding their balance sheet but pumping up the market by jumping into the ETF market, what the country is not doing is taking big steps toward economic reform. All this has morphed into a program that seems to share a key focus on doing "whatever it takes" to keep the economy moving forward.

Years ago what became known as the Plunge Protection Team or PPT, a group given the job of swooping in and supporting the market and stabilizing them whenever a sell-off occurred,found that such a policy was a slippery slope and risked incurring huge losses if not successful. The answer in this flawed policy was to never let the market slip but put on a path ever upward until everyone doubting the strength of the market finally capitulates. Needless to say over the years this has greatly distorted stock prices and valuations bringing us new high after new record high.

The BOJ Soaring Presence In Market Equals Fraud

What I want to make perfectly clear is that to accomplish this and keep the illusion alive that central banks must all continue expanding credit and debt so the wheels do not come off the economy. It would be rather hard to sell the illusion all is well if unemployment soars and defaults skyrocket. This means the central banks remain trapped in a box Ben Bernanke built and that Janet Yellen has reinforced.

A while back I outlined in an article how central banks through a stealth move were slowly buying equities and corrupting true price discovery. An interesting twist is that because money can easily flow across borders not all this is taking place in only the country where the credit originates. While a person can interpret all this as proof the markets are indeed rigged it also signals that any fall in prices is merely a signal for central banks to double down and rush in to buy more. It is easy to see how this feeds into a self-fulfilling loop of speculation. This falsely accomplishes two things, it bolsters and supports current holdings while reinforcing the image markets are climbing higher because our economic future is getting brighter which is a narrative mainstream media is glad to provide.

The Yen Is Very Vulnerable To A Fall As More Is Printed

This all started as a "short-term solution" but Ben Bernanke upped the ante by setting the bailout and money printing machines on high and flooding America and the world with QE. When other central bankers embraced this solution we embarked on an experiment that never really gained traction. Real momentum seems to ebb shortly after each new wave of stimulus and another fix seems to constantly be needed.With porous borders the money created by any of the central banks flows into distorting global markets.

In simple terms, the whole world is on a path that mirrors the same unsuccessful path taken by Japan since its bubble economy popped decades ago. It is a path that avoids real reform and bails out the very people that caused many of our problems.We are not creating real productivity growth or real wealth but simply driving up the value of certain markets and assets. This benefits those who own or have assets but does little or even hurts the poor or those who have nothing. You could say this lessens or reduces the relationship of debt but in reality, this is only true if we see massive inflation causing wages and income to soar. It is important to remember this is indeed a "high stakes" game and a strong incentive for central banks to continue on this course is that pension funds around the world are in serious trouble and any fall in their assets would be a disaster.

As we continue down the path to nationalizing debt two enormous problems exist, the first is the economic growth lacks any real quality and the second even bigger issue is that under this policy eventually central banks will control or pretty much own everything at a distorted value they determine best suits their narrative or purpose. The good or bad news depending on how you look at it is that the plan may not work and it may come crashing down around those in charge of this great manipulation. All this is akin to a doctor telling a patient to double or triple his dosage when the medicine does not work. Policymakers across the world have entered uncharted waters that are full of peril.

Monday, October 16, 2017

Years ago I picked up an interesting book at a flea market that gave an eye-opening tour through the twist and turns of math abuse and innumeracy. The book "200% of nothing" by A. K. Dewney delves into how percentage pumping and irrational ratios can be used to make and reinforce a point that has little validity. Sadly this practice has become far too common in modern society. Our ability to communicate faster over the years has resulted in more information being showered down upon us and as a result, facts are seldom checked. This has lead to the tongue in cheek comment, "if you saw it on the Internet" it has to be true. In fact, with all the fake news that bombards us on a daily basis, nothing could be farther from the truth. With this in mind it is important we make a solid effort to understand this crucial area of our lives.

The book takes a delightfully witty excursion into how figures are manipulated to sway our opinions and sheds light on the fact that truth can quickly be buried by those who choose to mislead us. A favorite quote of mine that has been attributed to no less then five people goes as follows "There are three kinds of lies; lies, damned lies, and statistics." These abuses are committed and spread by institutions and organizations devoted to skimming and scamming the public, changing opinion, or promoting their goods and agendas. Often they ice the cake by topping off their presentation with beautiful charts and graphs skewed in scale adding to the illusion of truth.

Few People Can Internalize Large Numbers

To my delight, the book makes a point and draws attention to the damage we suffer from not being aware of this manipulation. It also focuses on how many people fail to internalize large numbers or when faced with them become numb to their size and are unable to relate to them. This has become the bain of our relationship with Washington and our government. Politicians pass into law and spend massive and ungodly sums of money with very little idea of what they are doing. In today's world where people are put in positions to make decisions over what to do with large sums of money, innumeracy is an even greater danger than illiteracy. It could be argued that it is even far more common now that reading material is available everywhere. Needless to say the results of not understanding and being able to grasp the reality of the cost and how enormous these programs are can be devastating for those forced to pay for them.

This means that far more attention must be paid to this very important subject in school. For us to intelligently shape our future we must have a sound and basic understanding of numbers, what they represent, and how to relate to them. When math is joined with other disciplines and used in forming projections and predictions if the math is built on any type of false premise it undermines the whole endeavor. An inability to understand the rules of percentages, ratios, statistics and basic math logic is highlighted by the book's author using the rather harmless ad for a light bulb that claims you can save up to 200% of energy cost. He points out the fact is it is impossible to save over 100% of anything.

Thursday, October 12, 2017

Under the category of, "Whats happening in real estate" the city where I live has announced another incestuous boondoggle to be built using government money in an area where few people want to live. Ironically I found out about this project on the very day that I had just read an article about the 10 most and least expensive cities in America to rent an apartment. Of course, Fort Wayne was on the list of least expensive places to rent and it should be noted that a slew more new apartment projects are already under construction which will pressure rents even lower.

It is easy to argue that the role of government is to provide "necessary services" that the private sector cannot provide and not to go out of their way to compete with the private sector. Below is the article presented in all its politically spun glory and presented on the city's own so-called news link, http://www.fwcommunitydevelopment.org/. As you read or scan the piece please note these are not bare bone housing units. Let me be clear, these are not "plain Jane" in nature but an "over the top" effort to build an expensive monument to "affordable housing" that can act as a model for other communities. This is a cutting-edge experiment so inclusive that it even provides an electric car sharing program for residents.

(September 6, 2017) -- BWI, LLC is breaking ground on the first Moving Forward energy-efficient affordable housing and transportation development in Indiana. Posterity Heights in Fort Wayne, Ind. is a multi-phased development designed to provide net-zero housing, electric car sharing, an on-site early childhood learning center, education and job opportunities, healthy food and other amenities for traditional and single parents on a path to self-sustainability. The $42 million development will be built on the 28-acre site of the former McMillen Apartment parcel of land on the city’s southeast side (4209 Plaza Dr., Fort Wayne, IN 46806).
This is the first of six currently planned Moving Forward developments statewide (Indianapolis, Bloomington, Lafayette, two in East Chicago, Ind.). Each development will have its own unique characteristics and different developers.The Moving Forward Program, launched in 2015 by the Indiana Housing and Community Development Authority (IHCDA) and Energy Systems Network (ESN), is designed to create affordable housing that increases quality of life while decreasing the cost of living for low- to moderate income individuals and families.
“It was an honor joining Mayor Tom Henry and our partners at BWI, Joshua’s Hand and Energy Systems Network (ESN) for today’s groundbreaking ceremony,” Lt. Governor Suzanne Crouch, who serves as board chair of IHCDA, said. “With innovative, energy-efficient technology and support services for single mothers, I have no doubt that Posterity Scholar House will be a model for the way affordable housing is done not only in Indiana but nationwide.”
Posterity Heights will include four phases, the first of which is expected to be completed in the summer of 2018. Once completed, the development is expected to create 100 jobs.
“I continue to be encouraged by the progress we’re seeing in southeast Fort Wayne and throughout our community,” Fort Wayne Mayor Tom Henry, said. “The City has been working in partnership with neighborhood leaders to redevelop this property for almost 10 years and I am pleased to see this innovative project get underway. Together with the new homes in Renaissance Pointe, the McMillen Park Community Center, the completion of the Winter Street Urban Farm, construction of new trails and millions of dollars in infrastructure improvements, the Posterity Scholar House will contribute to the ongoing revitalization of this area and offer new opportunities and hope for residents.”
Phase I: Posterity Scholar House – 44 large, 2- and 3-bedroom apartments incorporating 500KW of solar and battery storage to create net-zero energy usage (the creation of enough energy on-site to equal tenant usage). The development couples energy-efficient housing with an electric car sharing program for residents, who will be single parent students enrolled in one of the local universities. The residents will utilize a smart phone App/Web Portal to manage energy usage, reserve transportation and access other amenities.

Phase II: Commercial Retail and Training Center (Posterity Place) – The Housing Life Development and Innovation Resource Center (HLDIRC) will provide a business accelerator and incubator for growing tech businesses. Posterity Place Food and Shops will include a My Market Grocery Store and Lutheran Health Network will lease space for a Federally Qualified Health Center.

Phase III and IV: Posterity Place Rental Townhomes (Posterity Village) and Market Rate Homes (Posterity Point) - Affordable lease-to-own townhomes and market rate homes will be built on the site. Pocket parks will be open to the public and community gardens will also be included.

“Posterity Heights is a transformative development at many levels, from creatively reusing a vacant site in southeast Fort Wayne, to fostering partnerships that are giving single parents a hand up in furthering their education and putting their kids on a path to a sustainable future,” Gary Hobbs, president and CEO of BWI, LLC., said. “We are proud to partner with Pastor Cedric Walker and the team at Joshua’s Hand to offer integrated supportive services to the families who will call the Posterity Scholar House home.”

“Joshua’s Hand has committed itself to the social side of economic development because no economy can grow without growing people, no matter how much money is spent, they’re the most important part of this,” Cedric Walker, CEO, Joshua’s Hand, said.

Posterity Scholar House is funded through a combination of IHCDA low income housing tax credits, HOME funds, the City of Fort Wayne, the Northeast Regional Cities funds, and other private sources, including BWI, LLC, the National Equity Fund, BMO Harris Bank, and Column Financial.

“This is a historic day in the affordable housing industry,” Jacob Sipe, executive director of IHCDA, said. “Not only will this development use a holistic approach to affordable housing development with education, career training and child development, but it will feature a high-tech environment with solar and battery storage as well as electric vehicles with charging stations.”

“We are lowering the combined cost of utility bills and transportation for residents by integrating advanced technologies including renewable solar energy, smart home technology, and electric vehicle car-sharing,” Paul Mitchell, president and CEO of Energy Systems Network (ESN), said. “But this is about
more than energy efficient technologies – this is a way to keep more money in residents’ pockets that they can in turn invest in other areas.”
For more information on Posterity Heights and Posterity Scholar House, visit www.Joshuashand.org.

About BWI, LLC:
With more than ten years of experience in developing affordable housing opportunities in Indianapolis’ urban core, BWI has a track record of success in putting together public-private partnerships that benefit underserved populations and the overall community. BWI also develops communities where residents have the opportunity to better their lives, which is the model for Posterity Heights.

About Joshua’s Hand: Joshua’s Hand’s mission is to assist the community in helping socioeconomically challenged persons replace the destructive habits that produce impoverished communities with positive, supportive and transformative services that promote self-leadership, hope leading to decent and affordable permanent housing and respectable commercial retail services. For more information, visit www.joshuashand.org.

About Indiana Housing and Community Development Authority (IHCDA):
IHCDA, chaired by Lt. Governor Suzanne Crouch, provides housing opportunities, promotes self-sufficiency and strengthens communities in order to build an Indiana with a sustainable quality of life for all Hoosiers in the community of their choice. For more information, visit www.ihcda.in.gov and http://www.in.gov/myihcda.About Energy Systems Network (ESN):
Energy Systems Network (ESN) is an initiative focused on the development of the advanced energy technology sector. ESN’s mission is to leverage our network of global thought leaders to develop integrated energy solutions to increase quality of life for today and tomorrow. Our collective focus is to reduce costs, emissions and waste; influence policy; and advance technological innovation. For more information, visit www.energysystemsnetwork.com.

I have highlighted several parts of the above text in bold. What you see above is basically a reference to a huge huge number of government arms, boards, entities, quasi-government, nonprofit groups, and people partnering for status and profit. The one thing these self-promoters that feed at the government's tit have in common is they have no problem spending and wasting the taxpayer's money. Bottom-line, if Jacob Sipe, executive director of IHCDA is willing to state, “This is a historic day in the affordable housing industry,” it must be true. Yes, it probably is historic in that it marks the groundbreaking of another boondoggle marking our demise. With projects like this underway in the financially conservative heartland of America, we should all wonder what insane undertakings are taking place in other parts of the country.

Sunday, October 8, 2017

Elon Musk's enormous success at PayPal moved Musk into the spotlight making him an icon never far from generating headlines that put him squarely in our view. It seems we can always count on Elon Musk to find some new way to get on the front page of the news and razzle-dazzle us on any given day. Musk reminds me of the silver-tongued defense lawyer Billy Flynn from the movie musical Chicago. The cynic in me makes me dubious of his ability to pull off or complete several of his recent projects but regardless of the fact I'm skeptical he has definitely proven he can razzle dazzle us. It should be noted that Musk appears Teflon coated and he has suffered little fallout from promises and deadlines unkept, failure simply does not stick but seems to run off his back.

It would be unfair not to make an effort to put this into proper context. This all comes after recent news headlines and articles about all the problems Musk must solve before he can take us to Mars. To clarify, I'm not writing about the "Mars" that is located in a borough located in Butler County, Pennsylvania, with a population of 1,699 during the 2010 census, I mean the planet Mars. The problems surrounding travel to Mars, however, did not stop Musk from unveiling his plans last Friday in Adelaide, Australia, where he announced a new rocket that would allow passengers to travel from one continent to another in about 30 minutes. During the presentation, Musk showed a video of images of a rocket taking off in New York and landing in various places around the world, including Tokyo and Shanghai. He said the New York-Shanghai trip could be done in 39 minutes, while a trip from Bangkok to Dubai would take 27 minutes and Tokyo to Delhi would be 30 minutes.

Give 'em the old three ring circus, Stun and stagger 'em!

In some ways this is an extension of his plans for rocket travel to Mars, Musk, the founder and CEO of SpaceX along with the electric luxury car company Tesla said the space flights that would rapidly allow people to travel from one continent to another could help to pay for future missions to Mars and that the cost per seat should be about the same as full fare economy in an aircraft. Currently, SpaceX plans its first trip to Mars in 2022, carrying only cargo with a key mission to find the best source of water on the Red Planet. The first manned mission will follow in 2024. Space X is aiming to start construction on the first spaceship in the next six to nine months.

These stories follow articles about Musk's plans to build a hydroloop or a "conceptual high-speed transportation system" incorporating reduced-pressure tubes in which pressurized capsules ride on an air cushion driven by linear induction motors and air compressors. A bing search of hydroloop system brings up a link to the https:/the website, hyperloop-one.com which allows people to see just how much travel time they will save when they zip along between their starting point and where they are going at nearly 700 miles an hour. Seriously, the damn thing doesn't even exist and this website has people typing in unrealistic destinations. Latching on to this idea and expanding the hype another website declares that "When it comes to the competition to the build the world’s first hyperloop, Missouri won’t take no for an answer." It seems someone proposed a route linking Kansas City, the college town of Columbia, and St. Louis that didn't make the cut when Hyperloop One announced the 10 winners of its Global Challenge, an initiative to identify the most promising sites for the world’s first hyperloop route.

Some of us critical of Musk not only point out how much of his money-losing ventures are supported and propped up by government subsidies, but that whenever, Musk is in trouble he goes into a dance, anything to distract or take eyes off the past promises he has failed to carry out. Like the proverbial snake oil salesman hyping the miraculous powers of his product and making outlandish claims accompanied by a tremendous amount of razzle-dazzle Musk tends to over promise. Snake oil products were said to have originated in China and many people believed that if you rubbed snake oil on your sore joints, then you would gain relief. Since the products didn't work as soon as they were sold the salesman would leave the area in haste.

Musk spoke for Tesla a while back saying it aimed to build 1,500 of the Model 3 in September, with plans to dial that up to 5,000 by the end of the year and 10,000 a week by the end of 2018, however, they only managed to finish 260, with only 220 of them reaching their new owners. The company blamed the shortage on "production bottlenecks" but failed to reveal, at least according to sources quoted by the Wall Street Journal (paywall), is that production went on at a much lower rate partly because a special area of the plant was assigned to hand assembly where workers put various pieces together manually. Tesla was supposed to use these initial months as an extended testing period, but the idea was to test the production cycle as well as the vehicle. With the former failing to perform, that means we might be looking at further delays in the promised ramp-up. It borders on insanity that since less than one vehicle in five thousand is a Tesla that the company is valued only second to Toyota as the most valuable car manufacture in the world. Many Americans have never seen a Tesla driven down the street.

Adding to the show Musk has created which many admirers find "so splendiferous" it now comes out that the governor of Puerto Rico has signaled his support for Elon Musk’s plan to use solar to restore power to the hurricane-stricken island. On Friday, Governor Ricardo Rossello made plans over Twitter to speak with the Tesla CEO further, describing the idea as potentially turning into the company’s “flagship project.” This is just one day after Musk outlined an idea to restore power to the island. Some parts of the Island were expected to spend the next four to six months without energy after Hurricane Maria. While Tesla has already shipped some Powerwall batteries to the island Musk’s plan to use solar to get all of Puerto Rico back online is far more ambitious. On Thursday Musk put out on Twitter that “The Tesla team has done this for many smaller islands around the world, but there is no scalability limit, so it can be done for Puerto Rico too,” he continued, “Such a decision would be in the hands of the PR govt, PUC, any commercial stakeholders and, most importantly, the people of PR.”

Please forgive me for not filling this article full of artist renditions of Musk's visions that give them far more credence than they might deserve. Struggling not to be overwhelmed by the trove of information available on Elon Musk and his ambitious plans I return to my original premise and how earlier I compared him to the silver-tongued defense lawyer Billy Flynn from the movie musical Chicago. One final thought, god help us if Musk continues to tap into the government and taxpayers to fund his projects that are not profitable to anyone other than Musk and those buying stock in his over the top ventures.

Saturday, October 7, 2017

This week the county where I live had its annual tax sale. Basically this consist of an auction type sale of all the properties that owners had failed to pay property taxes on or those that had fallen delinquent. One thing is very clear, the combination of too much money chasing too few properties is creating a bubble in this market. People entering this area of investing would be well to remember a fair degree of risk is involved when a person bids on such properties. When you are the high bidder you must immediately pay the amount you bid then wait for a year while the current owner has total ownership rights to the property. During that time if the owner brings the taxes current including penalties and interest they get to keep the property and the buyer or bidder gets a hefty amount of interest on what amounts to a loan.

While prices have soared at local tax sales several issues exist relating to the learning curve that new bidders may be unaware of, most of this deals with the risk they may be overlooking in their enthusiasm for a good return on their investment. Increasing the risk is the fact that seminars are being held telling people this is a fast and easy way to increase the yield they receive on investments and that if the person is unable or simply does not redeem the property they may get a very valuable property for a fraction of what it is worth on the open market. Unfortunately, this means you will be bidding against people coming from a seminar or investment workshop loaded with fresh knowledge and are so eager to "get a bargain" that they go plum crazy when it comes to price.

Are You Moving That House? Wait, Please Bring It Back

While I will not argue that a buyer may get lucky and pick up a gem for below market price it is just as possible they may get far more than they bargained for in the way of grief. This was very apparent during the recent sale that I left because of the sky-high bidding that was obvious from the get-go. I consider this proof that QE and low-interest rates are driving people into a frenzy in search of higher yield and in doing so they have tossed caution to the wind. Speculators now go from town to town with a slew of money both their own and that of investors placing high risks loans in a market they know little about and have had little time to research. This means many of these people really have no idea what they are buying and they often forget just how much prices can vary in different areas, even within a city location is everything.

With many of these buyers not being real estate savvy and lacking the time to even drive by the property as well as an inability to do the due diligence required they often find that they wind up buying a pig in a poke. These properties can suffer from a number of problems such as pollution issues, flooding or sewer problems, and any property put on the sales block because of unpaid taxes often has a great deal of deferred maintenance. It is important to remember the owner of these properties receives all monies bid in excess of the minimum bid if they do not redeem the property, this means if only 1,500 dollars of tax and penalties are owed on a house and it sells for 40,000 dollars at the tax sale the owner whether the person living in the house or even the mortgage holder has a claim on the overage. If the property has enough issues do not be surprised if they take the money and run.

The flaw in bidding too much is that you may not get your ten to fifteen percent interest as promised but may indeed get the property and rather than a gem it might turn out to be a lump of coal, this can be even more of a problem for buyers from outside the area who can live hundreds or even thousands of miles away. Using the example above the property owner behind roughly a thousand dollars in taxes sees five hundred dollars of penalties and auction fees added on thinks they will be given a full year to come up with the money plus fifteen percent of fifteen hundred dollars which is another two hundred twenty-five dollars bringing the total to seventeen hundred and fifty.

Many Properties Are Trashed And In Very Bad Condition

Owners of property that are struggling to pay taxes often have bad credit and other financial problems leaving them stretched to the limit, with this in mind many who cannot come up with a thousand dollars have little ability to raise a great deal more. Fifteen percent of the forty thousand dollars used as an example above comes to six thousand dollars, which would bring the amount needed to redeem the property to seventy-five hundred dollars, this is an amount totally out of their reach for many of these people but that does not mean they will go gently into the night. Anyone thinking a person having a property taken from them will turn it over clean swept and in good condition may be proven a bit over-optimistic.

As I stated earlier in this article the current owner has total ownership rights to the property and a year to redeem the property. If it is rented this means they can squirrel away the rents, if empty they can remove or sell off key components of the building such as the heating and cooling system. During that time while a bidder waits for a Tax deed to be granted some rather ugly events can take place. If a fire occurs if insured by the current owner he or she would receive the money and most likely not repair the property if they were about to lose it. In some cases, a house or building is condemned and demolished by the government and a lien for the cost put on the property meaning the bidder would get an empty lot and a rather large bill.

Thursday, October 5, 2017

The goal of this piece is to focus on the natural progression that takes place as an economy matures. When it comes to how we might view a developed country versus one that is in its early stages of economic development it might be helpful to think of a country in the early stages of development as a newly planned development on the edge of town. In the early stages of development, a great deal of money is spent on building the infrastructure necessary for the planned community, this includes roads, bridges, utility lines, and moving dirt. All this may go on for many years as homes and commercial buildings are constructed, all this creates jobs and new investment opportunities.

At Some Point, Focus Moves Towards Repair And Restore

At a certain stage of development, we reach a tipping point and a change takes place in the nature of how we spend our resources. As developments mature over time a larger percentage of outlays are spent on things like maintenance, updating, and upgrading existing buildings and infrastructure as needed, windows and roofs weathered by nature are replaced and parking lots repaved and sealed. Rather than pouring money into strictly new construction, we find as an economy matures its rhythm changes and the focus should become sustaining what has been created to maximize our prior investment and extend its use.

During the early 1900s just after the automobile became popular among the masses garages began to appear in cities. In the neighborhoods being built at the time garages were constructed for one car and fairly narrow to accommodate the cars of the time. When cars became larger and families started owning more than one automobile these garages were no longer was adequate and had to be enlarged. This example is used to highlight the fact that as lifestyles change neighborhoods change and evolve to better fit our needs and desires. Over time with each new invention, we alter our homes and the economy as well as a way of adapting to the new realities life fosters upon us.

In a perfect world, we would see developed areas not only continue to be maintained but steadily evolve and move forward. Because construction tends to reflect the lifestyles of those living during the planning and building phase, this means we should always be upgrading while preserving the best characters unique to the era in which buildings were conceived. When it comes to buildings this means adding insulation and replacing electrical panels when it comes to the economy it means finding new ways to manufacture and deliver goods. Unfortunately, the shift from a growth economy to one that is sustainable over time is very difficult to make and for many economies, it creates a slew of social as well as economic problems.

Much of mankind has adopted mantras such as "move forward or die" and "newer is better" these often prove to be short-sighted and discount what those before us have brought to the table. Failure to recognize this economic transition and reflect upon the natural progression of society ushers in conflicts and even war as politicians wrangle to produce the ever-growing growth demanded by a majority of voters. This shortsightedness could help explain why here in America we never hear politicians on the national scene call for conservation unless it is during an emergency. Consumers conserving, reducing waste, and any talk of government austerity usually conflicts with the goals of lobbyist hell-bent on creating growth at any cost.

War Is Wasteful And Disrupts The Natural Progression

The idea that the way to grow is to increase our population is flawed. Simply adding mouths to feed and efforts to merely add new workers to replace those retiring creates additional demand but is flawed and shortsighted because it ignores the problem of exploding population growth across the world. Just getting bigger is not always better and we must recognize even trees do not grow to the sky. At some point, we must face reality. War is often the byproduct of such growth and war has proven to be a poor answer to creating a better world. The bottom-line is we should focus on a transition towards a future that is sustainable over the long-term.

The world of tomorrow will create many new challenges as automation
reduces the need for workers and we struggle with creating jobs that
make people feel useful and allow us to live lives that have a purpose.
When discussing such things it is easy to extend the conversation to
things like income inequality and even a more interesting issues. What
do people deserve from society merely because they are born?
Do individuals have an obligation to give back to society and not simply take and make
demands upon it? These are questions we will continue to grapple with going forward and most likely the correct answer is embedded in reflection and thought.

Tuesday, October 3, 2017

As a person who cares about and is concerned about the economy, I find it very disturbing that so many people have forgotten or never taken the time to learn recent financial history. By recent, I'm referring to the last fifty to one hundred years. As we go back further it could be argued that the relevance and lessons we have learned weaken from changing times and because we now live in a considerably different world. This brings me around to a topic I often raise about how those without a long-term view or outlook of the economy wander about with what might be called "blind spots" where they totally miss possible scenarios as to how the world might react to unfolding events. I always marvel when I hear some young expert telling people how to
invest by cranking out the wisdom they picked up in school only last year.

Over time as interest rates have fallen over the decades how we view the economy has changed. It seems only the people who were directly affected by the sky-high interest rates of the early 1980s remember and internalize their impact. It is often only from a historical point of view that we can gain a real appreciation and be truly aware of how damaging high-interest rates can be. They increase the carrying charge on many items, commodities, and items that sit idle or underutilized. High rates caused by inflation bring about a rapid revaluation of assets. Soaring valuations, stretched and distorted markets untethered to financial reality are not all that uncommon, however, history shows that sooner or later gravity overcomes their momentum and they come crashing to the ground with a thud.

An example I have used before has to do with William Simon (1927 – 2000) was a businessman and a
philanthropist. He became the Secretary
of the Treasury on May 8, 1974, during the Nixon administration and was
reappointed by President Ford and served until 1977. Years ago I wrote a piece titled, "A Time For Action, 1980?" where I detailed some of the thoughts expressed way back then in the book "A Time For Action" written in 1980 William Simon after his time as
Secretary of the Treasury. At the time he was "frightened and angry" and the book was his way of sounding the trumpet about how America was heading
down a dangerous path.Picking up a copy of the book that I had read decades ago caused me to reflect on and evaluate the events that
brought us to today. As often the future is unpredictable, looking
back, it is hard to imagine how we have made it this long without
finding long-term solutions and addressing the concerns that Simon wrote
about so many years ago. Back then it was about billions of dollars of
debt, today it is about trillions of dollars. This causes me to think that something
has gone very wrong.

Do Not Underestimate The Importance Of The 1980 Reset

By the end of the 1970s, inflation started to soar. Only by taking interest
rates to nosebleed levels was then Fed Chairman Paul Volcker able to
bring inflation back under control. Paul Volcker, a Democrat was appointed as Federal Reserve chairmanby
President Carter and reappointed by President Reagan. Volcker is widely
credited with ending the stagflation crisis where inflation peaked at
13.5% in 1981. He did this by raising the fed funds rate which averaged
11.2% in 1979 to 20% in June of 1981. This caused the prime rate to hit
21.5% and slammed the economy into a brick wall, surprisingly it bounced back rather well. It must be noted this also had a profound on how we felt about money and debt while effecting and shaping the level of interest rates for decades.

Interest Rates Today Are Ready To Fall Off The Chart!

This action and the increased interest rates in following years is
credited by many to have caused Congress and the President to
eventually balance the budget and bring back some sense of fiscal
integrity and price stability to America. As the debt from the Vietnam war and soaring oil prices became
institutionalized we moved on. Interest rates slowly dropped and the
budget came under control. In recent years spending has again started to
grow and at the same time taxes have been cut. This has slowly occurred
over years and been ingrained in the system. I'm sorry to say the path that Fed Chairman Paul Volcker set right decades ago has again become unsustainable and
many people will be shocked when this reality hits.

At some point, it might be wise to take
a moment and ask, where will this end, and just as importantly, how? We should remember trees don't grow to the
sky and that black swans do not announce their arrival. In the end what
bothers me most is that the numbers simply no longer work. It is time we
consider the Fed and our government as one and Washington's failure to
respond to the needs of the average American has been a big part of what
created a pathway for Donald Trump's rise to power and his being elected
as President as well as some of what is fueling the backlash against
globalism. Ironically, the national debt has not been a big issue to many
voters who I chose to accept the idea it will not yield huge negative
economic ramifications.

As of late the ways and metrics used for years to determine value have
been chucked out the window and been replaced by momentum and technical
systems and if they don't work "don't fight the Fed", has become the
rallying call driving us forward. Another watershed event is the general acceptance by many economists of what many people call Modern Monetary Theory or MMT. Also known as neo-chartalism, MMT is an economic
theory that details the procedures and consequences of using government-issued tokens and our current units of fiat money. Newly acquired tools
like derivatives and currency swaps are supposed to allow us to print
and control growth going forward thus manipulating our problems away.

Do not underestimate the value of insight gained from decades of economic perspective. It tells us the economy of today is far different from the way
things have always been. Today many Americans feel just as frightened and angry
as former
Secretary of the Treasury Simon did back in 1980. Since then America has kicked the can down the
road, failing time and time again to face the tough decisions, and
failing as well to take action. Part of the problem is the amount of
debt has grown so large that we can no longer imagine or put a face on
it. To those of us who envision the day of reckoning may soon be upon us, how it arrives is the
question. One thing we can bank on is
that when it arrives the majority of people will be caught totally off guard. Mark my words, cause, and effect remain a reality of life whether we are prepared or not!

Sunday, October 1, 2017

The issues of sovereign borders and self-rule seldom fail to garner a great deal of attention. The monikers cast upon those taking up the cause of leading their homelands towards self-rule are generally cruel such as traitors, rebels, or even terrorist, but on occasion, these people are seen as freedom fighters. It is ironic that in a time where Presidents seem to pander and anguish over every American life lost to violence that Abraham Lincoln who oversaw the death of over 620,000 soldiers that diedduring the civil war is seen by many as our greatest President. What is the value of keeping any nation together against the will of its people?

What is happening in Ukraine and the unrest in many areas of the world brings into focus the many conflicts that develop when a region decides to change governments often outside the recognized democratic system of voting. In some cases, even after an overwhelming vote such as in Crimea, the whole process is called into question. Unfortunately, the American civil war did little to resolve the issue of whether people had the right to secede or withdraw formally from membership in a federal union, an alliance, or a political or religious organization. The American civil war did little to resolve whether people had the right to secede or withdraw
formally from membership in a federal union, an alliance, or a
political or religious organization and certainly should not be used as a template for a solution. The bottom-line is that it is usually the politicians that refuse to give up
control and this will not change.

Marchers Fill The Streets Calling For Self-rule

Several recent votes in areas across the world have shown the debate on self-rule is alive and well. One of the events rekindling the debate of sovereign borders was a vote in northern Iraq where over 90% of Kurds are said to have voted to separate from the country and form their own nation. Sometimes people seek to go their own way because they feel oppressed or because of cultural differences. At other times it is in an effort to assert more control over their own lives and destiny. When these votes occur it is not uncommon to see a great deal of passion unleashed by those on both sides of the issue.

In Spain, the Catalans appear ready to exercise their will. While they live well, in the prosperous heart of Europe many Catalans have grown to adulthood believing that they were, simply, not Spanish. Their desire for independence or self-rule is not the result of any external threat, war or by an economic collapse but driven by deep grievances that go to the bone. The need to break away from Spain traces all the way back to 1714, when Philip V of Spain captured Barcelona during the War of Spanish Succession, bringing an end to the Catalan principality. The reawakened political movements, both in Catalonia and in Madrid have magnified the partisan media on both sides and resulted in the Spanish government’s blunt, reflexive clampdown on those supporting theCatalan referendum.

The Movie Braveheart Centers On Freedom And Self-rule

The aim of this article is to examine some of the issues concerning self-rule and how the world reacts when people go in search of what they see as "freedom". We must understand that being recognized as legitimate by other governments is one of the first hurdles newly formed groups face. After that consider operating and running a government is expensive and requires a bit of experience. A lack of expertise is also a major stumbling block to long-term success. The leaders of change or a revolution often do not possess the skills to progress through this next level. The problem of corruption does not automatically vanish with regime change.

In June of 2013, I wrote an article about Scotland and the issues involved in its leaving the UK. It pointed out that such an event would affect the British currency when voters in Scotland moved towards a decision as to whether to separate from the UK and opted for independence in a referendum. What an independent Scotland might do about a currency was up in the air. Another matter was whether the newly formed independent country would depart "Scot free" or would inherit part of the massive national debt owed by the UK. To clarify, in our modern world setting up your own independent nation is a formidable and complicated endeavor.

Clouding these debates we often see matters such as whether to print a new currency or nationalize existing banks, both cause concerns of future economic stability. Another problem and question I tried to highlight in that article was the danger that if the UK Government was agreeable to allowing Scotland to go their merry way, Wales and Northern Ireland might also be inspired to move towards independence. At the time I noted it might also encourage similar movements in Catalonia, Belgium, Northern League in Italy, Basques, Cornish, and among the Poles. During a movement for independence relationships are often strained and even when they are turned back that does not mean the issue is dead.

What we are talking about comes down to governance and the right of people to choose under whose rule they want to live. Sometimes it is about one group of people forcing their will upon another. Ethnic pride, taxation, persecution, and sometimes simply the desire for more autonomy lead the move towards independence. While the idea of living in a smaller country may have some benefits it can often muck up the works and result in expensive bureaucratic duplication. It is difficult for a small country to function in our modern world and meet all the legal benchmarks required by their larger brethren. Currency, passports and documentation, conflicts over enforcing laws with other countries, and other problems quickly surface.

Borders are a creation of man and not visible to the birds flying above. Much bloodshed and many wars could be avoided if the issues of regime change or borders could be handled in a more rational and constructive way, but do not expect this to happen. Borders and political control is a problem that haunts man since before the written word. A few years back it was President Obama talking about the legal sanctity of sovereign borders, but this was at a time he wanted them honored. The truth is this is an argument of convenience masking deeper issues. When it comes down to it we are just pawns in this sad power game. If you doubt this just ask some of the many people displaced from their homes in Syria.

About Me

Bruce Wilds is a contractor that owns real estate in the Midwest, his holdings include apartments and office complexes. He is anchored to reality and the economy as he maintains, designs, and leases buildings. This has made him keenly aware of rapidly changing lifestyles, this blog incorporates many of the experiences and knowledge from his hands-on business style, extensive travels, and studies of history, politics and economics.